Is Monitise Plc The Perfect Partner For Vodafone Group plc After Latest Contract Win?

Mobile payment solutions provider Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) has today announced a new contract win with a leading Business Process Outsourcing (BPO) provider to launch Mobile Money services. Although there are few details included in the release, the relationship is set to last for five years and will see the two companies launch the offering during the course of the next year, with it having a value of several £millions for Monitise.

A Viable Business?

Clearly, the award of the contract is yet more good news for Monitise and for its shareholders, as it seeks to turn a vast amount of potential into a highly profitable business. This is due to take place in 2016 and, with shares in the company having been relatively weak in recent months, progress towards this target is likely to be the catalyst that investors are waiting for.

As such, news of the contract win has only increased the company’s share price by around 1% at the time of writing, with investors only likely to generously reward bottom line, rather than top line, progress moving forward.

Potential Combination?

While Monitise does undoubtedly have considerable potential, with it having an attractive product operating in a fast-growing space, it does come with a considerable amount of risk. Part of that risk is with regard to its loss-making status and whether it can become a viable and hugely profitable business, so linking it up with a more established peer in Foolish portfolios could prove to be a smart move.

Among its mobile telecoms sector peers is Vodafone (LSE: VOD) (NASDAQ: VOD.US). It is enduring a challenging period at the present time but, like Monitise, has considerable future potential. For example, its operations are now centred on Europe and, looking ahead to next year, the region could surprise on the upside as a result of the ECB’s planned asset repurchase programme. This would clearly be great news for investors in Vodafone and could help to stimulate the company’s bottom line.

Of course, where Vodafone could add value when paired with Monitise is in terms of its relative stability and consistency. As a telecoms major, Vodafone offers diversity and a relatively certain earnings profile – neither of which are available to investors in Monitise at the moment. Similarly, Monitise appears to offer more growth potential and the scope to become a dominant player in a relatively new market. In this sense, then, the two could prove to be a good match.

Looking Ahead

However, investor sentiment in Monitise remains weak. This has been the case throughout recent months, with Visa’s decision to sell down its stake hurting the market’s view of the company. As a result, shares in Monitise have fallen by 39% in the last three months alone. Therefore, until major strides are taken in regard to profitability, Monitise’s share price could come under further pressure in the short term, meaning that now may not be the right time to buy a slice of it.

Vodafone, on the other hand, remains a sound income play that offers a yield of 5.2%, relative stability, as well as improving prospects for growth in Europe. As such, it remains an appealing ‘buy’ at the present time.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.